What are the taxes on a 401(k) distribution?

What are the taxes on a 401(k) distribution?
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#1

Does the 401(k) distribution tax that’s based on your income bracket only apply to the contributions you’ve made over the years? If all of the distribution is taxed, doesn’t that pretty much negate the whole purpose of capital gains tax exemption?


#2

Capital gains do not play a part in the analysis; all withdrawals are recognized as taxable income to you. If you hold funds in non-retirement accounts then the capital gains rules may apply.
Good Luck,
Adam C. Harding, CFP
Disclosure: For informational purposes only. Not to be considered investment, tax, or legal advice. My responses on Nerdwallet are for educational purposes only and action should not be taken until a thorough analysis has been done by me or your financial advisor. Investing involves risk of loss and diversification does not ensure protection against risk of loss.


#3

Withdrawing money from your tax deferred 401k or IRA is deemed ordinary income, and will be taxed at your marginal tax rate. If you pull out alot then it may even bump you into a higher marginal tax bracket. And if not 59.5 years old then tack on an additional 10% penalty tax. How much you contributed, or cost basis of investments held in the 401k/IRA, mean nothing at this time. Only the amount withdrawn matters.
Capital gains tax rates only apply to taxable accounts, so doesn’t apply in your situation.
-The Savings Coach


#4

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